Anthony Epps

Earlier this year, Nasdaq, NYSE and NYSE American proposed listing standards requiring that listed issuers adopt clawback policies to recoup incentive-based compensation granted to executive officers on the basis of financial results that are subsequently restated, in connection with final rulemaking by the Securities and Exchange Commission (the “SEC”).  While the SEC may further postpone this deadline, listed issuers would be advised to prepare their boards now to approve compliant clawback policies by August 8, 2023, the 60-day deadline assuming that the SEC approves the listing standards by June 9, 2023, the Friday before the June 11 date by which it will either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed listing standards. Which companies must adopt the SEC’s prescribed clawback policy? Substantially all listed issuers, including foreign private issuers (“FPIs”), emerging growth companies (“EGCs”) and smaller reporting companies (“SRCs”) must adopt policies that comply with Rule 10D-1 of the Securities Exchange Act of 1934 (the “Exchange Act”) and either Nasdaq Listing Rule 5608, NYSE Section 303A.14 or NYSE American Section 811 . Which individuals are subject to the clawback policy? The listing standards apply to an issuer’s current and former executive officers, meaning individuals who meet the definition of “officer” under Rule 16a-1(f) of the Exchange Act.1 Rule 10D-1 specifies that executive officers of the issuer’s subsidiaries are included if they perform such policy-making functions for the issuer, but it is not intended to include policy-making functions that are insignificant.   Furthermore, executive officers will include, at minimum, the executive officers identified by the issuer in its Form 10-K or annual proxy statement pursuant to Item 401(b) of Regulation S-K of the Securities Exchange Act of 1934 (the “Exchange Act”).  Recovery is required only of incentive-based compensation received by a person (1) after beginning service as an executive officer and (2) if that person was an executive officer during the three-year look back period, and then, only if the other conditions under Rule 10D-1 and the listing standards are fulfilled. What triggers the obligation to recover compensation? The issuer must recover the amount of erroneously awarded incentive-based compensation if the issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer with any financial reporting requirement under the federal securities laws.  There is no fault or misconduct required to trigger a clawback.  Furthermore, a clawback may be triggered by a “Big R” restatement (to correct an error in previously issued financial statements that is material to the previously issued financial statements) or a “little r” restatement (that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period). Restatements that do not result from the correction of an error do not trigger a mandatory recover of incentive-based compensation. For example, restatements due to changes to accounting principles, certain internal restructurings, certain adjustments in connection with business combinations, and revisions due to stock splits are not considered “errors” triggering clawbacks. In implementing the clawback policy, boards and management will need a process to determine when a restatement is “required.”2 There will be judgment involved in such a determination, and the judgment is open to review by courts or regulators.  According to Rule 10D-1, a restatement is “required” on the earlier of (1) the date the issuer’s board of directors, a committee thereof or the officer(s) authorized to take such action if board action is not required, concludes, or reasonably should have concluded, that the issuer is required to prepare an accounting restatement; or (2) the date a court, regulator or other legally authorized body directs the issuer to prepare an accounting restatement.  What compensation is subject to recovery? Erroneously awarded “incentive-based compensation” is subject to recovery.  In other words, the amount(s) by which the executive officer’s incentive-based compensation for the relevant period(s) exceeded the amount(s) that the executive officer otherwise would have received had such incentive-based compensation been determined based on the restated amounts.  All amounts shall be computed without regard to taxes paid. “Incentive-based compensation” is defined as compensation granted, earned or vested based wholly or in part upon the attainment of a financial reporting measure, which can include stock price or total shareholder return (“TSR”).  It includes amounts contributed to benefit plans based on erroneously awarded compensation and earnings to date (eg, long-term disability plans, life insurance plans, and SERPs, but not tax-qualified plans).  Incentive-based compensation does not include awards that are granted, earned and vested without regard to attainment of financial reporting measures, such as time-vesting awards, discretionary awards and awards based wholly on subjective standards, strategic measures or operational measures. “Financial reporting measures” are those that are determined and presented in accordance with the accounting principles used in preparing the issuer’s financial statements (including non-GAAP financial measures) and any measures derived wholly or in part from such financial measures. For the avoidance of doubt, financial reporting measures include stock price and TSR.  A measure need not be presented within the financial statements or included in a filing with the SEC to constitute a financial reporting measure for purposes of a clawback policy. How should an issuer quantify the impact of a financial restatement on TSR or stock price, if either is a financial performance measure? The SEC recognized that quantifying the impact of a restatement on TSR or stock price performance will be difficult.  Rule 10D-1 and the proposed listing standards provide that the amount to be recovered must be based on a reasonable estimate of the effect of the restatement on the stock price or TSR upon which the incentive-based compensation was received, and the issuer must maintain documentation of the determination of that reasonable estimate and provide such documentation to the stock exchange. Is it pre- or post-tax compensation that is to be recovered? The SEC mandates recovery of pre-tax compensation, which leads to the question of whether executive officers will be able to recover the income tax paid on recovered compensation.  IRS precedent in this area is limited and tenuous, though we expect further developments.  Officers may elect to defer receipt of incentive-based compensation for the applicable recovery period, in order to defer taxation. What is the recovery period? Incentive-based compensation “received” during a recovery period of three fiscal years immediately preceding the determination that a restatement is required is subject to clawback.  Incentive-based compensation is “received” in the fiscal period during which the financial reporting measure is attained, even if the grant occurred prior to the recovery period, and even if the payment or grant of the compensation occurs after the end of that period.  The recovery period also includes transition periods resulting from a change in the issuer’s fiscal year. Are there requirements as to the method of recovery? Issuers are permitted to exercise discretion as to the method of recovery as long as it is done reasonably promptly depending on the facts and circumstances of the issuer, the incentive-based compensation, and the executive officer. Such methods which may include, without limitation: requiring reimbursement of incentive-based compensation previously paid; forfeiting any incentive-based compensation contribution made under the issuer’s deferred compensation plans; ··offsetting the recovered amount from any compensation that the executive officer may earn or be awarded in the future; some combination of the foregoing; or taking any other remedial and recovery action permitted by law. What are the exceptions to the clawback requirement? The issuer must recover erroneously awarded compensation except to the extent that one of the following conditions are met, and the issuer’s committee of independent directors responsible for executive compensation decisions, or in the absence of such a committee, a majority of the independent directors serving on the board, has made a determination that recovery would be impracticable: The direct expense paid to a third party to assist in enforcing the policy would exceed the amount to be recovered (before doing so, the issuer must make a reasonable attempt to recover the erroneously awarded compensation, document such reasonable attempt(s) and provide that documentation to the exchange). Clawback would violate home country law if the law was adopted prior to November 28, 2022 (before doing so, the issuer must obtain an opinion of home country counsel, acceptable to the exchange, that recovery would result in such a violation and must provide that opinion to the exchange). Clawback would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees, to fail to meet the requirements of Internal Revenue Code Sections 402(a)(13) or 411(a) and regulations there under. This exception was added to satisfy the anti-alienation rules and other qualification requirements applicable to such plans under the Internal Revenue Code. There is no exception with respect to non-U.S. retirement arrangements with similar limitations. What if our existing clawback policy is broader than the SEC-prescribed policy, or we want to adopt a broader policy? The SEC-prescribed policy must be filed and publicly available as an annual report exhibit.  To the extent that the issuer wishes to maintain or adopt a policy that covers a broader range of employees or circumstances, for example, certain types of employee misconduct, the issuer may include such provisions in its publicly filed policy or adopt a separate policy that is not subject to public disclosure. Issuers should consider the viewpoints of its investors and proxy advisory firms when deciding whether or not to adopt a broader policy.  For example, under ISS’s equity plan scorecard (“EPSC”), in order to receive points for the clawback policy, the policy should authorize recovery upon a financial restatement and cover all or most equity-based compensation for all named executive officers (including both time- and performance-vesting equity awards). A clawback policy that adheres to the minimum requirements of the SEC’s finalized clawback rules under Dodd-Frank will not receive EPSC points because the final rules generally exempt time-vesting equity from compensation that must be covered by the policy. How does the SEC-prescribed policy impact recovery under the Sarbanes-Oxley Act? Rule 10D-1 is not intended to alter or otherwise affect the interpretation of other recovery provisions, such as Section 304 of the Sarbanes-Oxley Act (“SOX”).  Unlike the clawback provisions applicable to the CEO and CFO under SOX, the SEC does not require a finding that the executive engaged in misconduct that contributed to the financial restatement. To the extent that the SEC-prescribed clawback policy would provide for recovery of incentive-based compensation that the issuer has already recovered pursuant to SOX or other recovery obligations, it would be appropriate for the amount recovered to be credited to the required recovery under the clawback policy.  However, amounts recovered under the issuer’s SEC-prescribed clawback policy do not reduce amounts recoverable under SOX. Can an issuer indemnify its executive officers against loss of the recovered amount?  An issuer cannot indemnify any executive officer against the loss of erroneously awarded compensation, including by paying or reimbursing for premiums for any insurance policy covering any potential losses.  Similarly, an issuer may not advance any costs or expenses to an executive officer in connection with any action to recover the compensation. What are the clawback disclosure requirements? The SEC adopted amendments to Item 402 of Regulation S-K, Form 10-K, Form 40-F, and Form 20-F (and for listed funds, Form N-CSR) to include new disclosure requirements related to the clawback policies. Under the new rules, a listed issuer must file its policy as an exhibit to its annual report.  In addition, the cover page of the annual reports include two new check boxes: If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. □ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). □ For domestic issuers, if at any time during or after the last completed fiscal year the issuer was required to prepare an accounting restatement that required recovery of erroneously awarded compensation, or there was an outstanding balance as of the end of the last completed fiscal year of erroneously awarded compensation, an issuer must disclose in its proxy statement how it has applied the policy, including, as relevant: the date it was required to prepare an accounting restatement; the aggregate dollar amount of erroneously awarded compensation attributable to such accounting restatement (including an analysis of how the amount was calculated); if applicable, the estimates used in calculating the amount in the case of awards based on stock price or TSR; the aggregate dollar amount of erroneously awarded compensation that remains outstanding at the end of the last completed fiscal year and any outstanding amounts due from any current or former named executive officer that has been outstanding for 180 days or more; if the aggregate amount has not yet been determined, this fact and the reasons why not; and details regarding any reliance on the impracticability exceptions, including, for each current and former named executive officer and for all other current and former executive officers as a group, the amount of recovery foregone and a brief description of why the issuer decided not to pursue recovery. if at any time during or after the last completed fiscal year, the issuer was required to prepare a restatement, and the issuer concluded that recovery of erroneously awarded compensation was not required, it should briefly explain why application of the clawback policy resulted in this conclusion. Any amounts recovered will reduce the amount reported in the applicable column of the Summary Compensation Table for the fiscal year in which the amount recovered initially was reported, and with those amounts identified by footnote. The informationwill not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, except to the extent that the issuer specifically incorporates it by reference. Issuers will be required to use Inline XBRL to tag their compensation recovery disclosure. Are there disclosure requirements specific to foreign private issuers? FPIs will be required to provide the same information called for by Item 402(w) of Regulation S-K, on their applicable annual report.  An FPI will be deemed to comply if it provides the information required by Items 6.B, 6.E.2, and 6.F of Form 20-F, with more detailed information provided if otherwise made publicly available or required to be disclosed by the issuer’s home jurisdiction or a market in which its securities are listed or traded, or if it provides the information required by paragraph (19) of General Instruction B of Form 40- F, as applicable. Item 6.F of Form 20-F provides for individualized disclosure for an FPI’s named executive officers. FPIs that file on domestic forms and provide executive compensation disclosure under Item 402(w) of Regulation S-K should provide individualized disclosure for their named executive officers to the extent required by Form 20-F. For FPIs that use Form 20-F, individualized disclosure is required about members of their administrative, supervisory, or management bodies for whom the issuer otherwise provides individualized compensation disclosure in the filing.  Item B.(19) of Form 40-F provides for individualized disclosure for an issuer’s named executive officers. Such individualized disclosure is required about executive officers for whom the issuer otherwise provides individualized compensation disclosure in the filing. What are the compliance deadlines? Assuming that the SEC approves the proposed listing standards by June 9, 2023, issuers will be required to adopt a compliant clawback policy by August 8, 2023.  Issuers subject to the listing standards will be required to adopt a clawback policy no later than 60 days following the date on which the applicable listing standards become effective and must begin to comply with these disclosure requirements in proxy and information statements and the issuer’s annual report filed on or after the issuer adopts its recovery policy.   What are the consequences of failure to comply with the rules? An issuer may be subject to delisting if it does not adopt and comply with the prescribed clawback policy. In addition, an issuer may be subject to delisting if it does not disclose its clawback policy in accordance with the applicable SEC rules. How should companies prepare now? Adopt a new clawback policy or update the existing clawback policy to comply with SEC requirements and consider whether to adopt broader clawback provisions, either in the same policy or a separate policy that will not be publicly disclosed. Review and revise executive employment agreements, incentive compensation plans and/or related award agreements to confirm that they contain provisions that will facilitate the enforcement of the clawback policy. Evaluate the use of financial performance measures in executive employment agreements and incentive programs and strengthen related controls to minimize the risk of restatement. Discuss with internal and external auditors ways to mitigate the restatement risk. Revise officer indemnification agreements to specify that indemnification is not available for the loss of compensation recovered under the clawback policy and applicable law. 1Rule 16a-1(f) defines an officer as the issuer’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the issuer in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the issuer. 2As noted in the SEC’s adopting release, a “Big R” restatement triggers the filing of an Item 4.02 Form 8-K and prompt filings of amendments to restate the previously issued financial statements. In contrast, a “little r” restatement generally does not trigger an Item 4.02 Form 8-K, and an issuer may make any corrections “the next time the registrant files the prior year financial statements.”  

Preparations for annual reporting on Form 10-K and the 2020 proxy season have begun in earnest for many companies.  We have summarized certain governance and disclosure developments that should be considered in the course of preparing these filings. For additional background, please contact us for materials from our presentation, “Preparing for the 2020 SEC Reporting Season.” Annual Report on Form 10-K FAST Act Amendments  The SEC adopted amendments to modernize and simplify certain disclosure requirements in Regulation S-K, and to make annual reports on Form 10-K easier to understand and navigate. Revised 10-K Cover Page: Adds information on a company’s registered securities and stock exchanges, features Inline XBRL tagging, and deletes the Section 16 compliance checkbox. Flexible Periods for MD&A: While the Management’s Discussion and Analysis (MD&A) in the Form 10-K formerly covered a three-year period, companies may now discuss only two years of financial results, if the earliest year is included in prior filings and is not material to the current discussion.  If the company elects to omit discussion of the earliest year, it must include a statement that identifies the location in the prior filing where the omitted discussion may be found. Updated Headings: Certain captions have been revised for brevity and clarity.  “Information About Our Executive Officers” replaces “Executive Officers of the Registrant.”  Additionally, in the proxy statement, “Delinquent Section 16(a) Reports” replaces “Section 16(a) Beneficial Ownership Reporting Compliance.”  This latter section may be deleted if there were no late Section 16 reports during the fiscal year. Streamlined Confidential Treatment Process: Companies may now redact confidential information from material contracts without filing a confidential treatment request, so long as the information: (i) is not material and (ii) would likely cause competitive harm to the company if publicly disclosed. New Exhibit for Description of Securities: Companies must now file brief descriptions of their registered securities as an exhibit to Form 10-K.  Going forward, a company may incorporate by reference and hyperlink a prior exhibit containing the required disclosure if the information is unchanged. Fewer Material Contracts as Exhibits: Previously, companies were required to file as exhibits all material contracts entered into within two years before filing.  Now, companies other than “newly reporting registrants,” need only file as exhibits material contracts that are to be performed in whole or in part at or after filing. A more complete summary of relevant changes may be found here. Risk Factors In his remarks on principles-based disclosure in March 2019, William Hinman, Director of the Division of Corporation Finance, noted that risk factor disclosure should address the most significant things that make an investment in a company and its securities subject to uncertainties or risk.  Concise and focused disclosure explaining how each risk affects the company is most useful for investors.  Companies should take care not to bury the reader in generic boilerplate or laundry lists of risks that might apply to any company. Not only should companies consider new and emerging risks, they should review the status of existing risks.  Trending issues across industries include the disruptive impact of shifting trade policies in China and Europe, data privacy and compliance with the European Union’s General Data Protection Regulation and the California Consumer Privacy Act, the potential impact of climate change and natural disasters, uncertainty around government policies including on immigration, and transitions related to phasing out LIBOR.  Drafters should keep the following tips in mind when discussing risk: Use descriptive captions for the risk and its impact. Review peer risk factors, but tailor the risks to the company. Consider the probability and severity of the risk. Focus discussion to the risk itself, rather than mitigation. Organize risks by industry, company, or investment, and prioritize the risks from most to least significant. Remember, an abstract discussion may not be enough if a specific risk has materialized in your industry, such as cybersecurity. When in doubt, lean toward disclosure.  But be prepared to discuss how a risk is being addressed. Critical Audit Matters In 2017, the Public Company Accounting Oversight Board (PCAOB) adopted enhancements to auditor’s reports, including communications of critical audit matters (CAMs), which are matters that relate to accounts or disclosures that are material to financial statements, and that involve especially challenging, subjective or complex auditor judgments.  Goodwill and intangible assets, revenue, and income taxes have been common topics for CAMs disclosed so far. The auditor’s report is required to identify the CAM, describe the principal considerations that led the auditor to determine the matter is a CAM, describe how it was addressed in the audit, and make reference to the relevant financial statement accounts and disclosures.  If the auditor determines that there are no CAMs, the auditor must make that statement in the report. Communications of CAMs will take effect for audits for fiscal years ending on or after June 30, 2019 for large accelerated filers and for audits for fiscal years ending on or after December 15, 2020 for all other companies to which the requirements apply.  The PCAOB expects that most audits will identify at least one CAM.  While the requirements only apply to the current audit period, the auditor may also identify a CAM in a prior period if appropriate. Management should consider whether the existence of a CAM should result in additional disclosure in other areas of the Form 10-K, such as the MD&A.  Audit committees of large accelerated filers may have already conducted “dry runs” with their auditor regarding potential CAMs and how they should be drafted.  Audit committees of other categories of filers should discuss with their auditor the benefit and timing of conducting such “dry runs.” Proxy Statements New Hedging Policy Disclosures Under a new rule on employee, officer and director hedging (Item 407(i) of Regulation S-K), companies are required to either (i) provide a fair and accurate summary of any practices or policies that apply, including the categories of persons covered and any categories of hedging transactions that are specifically permitted or disallowed or (ii) disclose their practices or policies in full.  If a company does not have any hedging practices or policies, it must disclose that fact or state that hedging transactions are generally permitted. Disclosures are required in proxy and information statements for fiscal years beginning on or after July 1, 2019.  For smaller reporting companies and emerging growth companies, the new disclosure requirements apply for fiscal years beginning on or after July 1, 2020.  The requirements do not apply to foreign private issuers or listed closed-end investment companies. If they have not done so already, companies should consider adopting a hedging policy, including the categories of persons covered and hedging transactions permitted or disallowed. CEO Pay Ratios in Year Three This is the third year of required CEO pay ratios (Item 402(u) of Regulation S-K).  The ratio compares the annual total compensation of a company’s median employee to that of its chief executive officer.  Companies only need to identify a median employee once every three years, unless there are significant changes to (i) the employee population, (ii) employee compensation arrangements or (iii) the original median employee’s circumstances, so that the company reasonably believes its pay ratio disclosure would significantly change. In cases (i) and (ii), the median employee should be re-identified.  In case (iii), the company may use another employee whose compensation is substantially similar to the original median employee, based on the compensation measure used to select the original employee.  If the same median employee is used, companies should briefly disclose the basis for the reasonable belief that no change occurred that would significantly impact the pay ratio disclosure. 2020 Proxy Voting Policies ISS has released its 2020 proxy voting policies for meetings on or after February 1, 2020. As with last year, ISS will recommend an “against” or a “withhold” vote for the chair of a company’s nominating committee if there are no female directors on the board, absent a firm commitment in 2020 to achieve gender diversity within a year. ISS will recommend votes “against” equity-based and other incentive plans with evergreen provisions. ISS will include race or ethnicity, in addition to gender, in its pay gap voting policies. ISS clarified its voting policies with regard to poor board meeting attendance, excepting nominees who only served part of the year, and clarified its policy on problematic governance and capital structures for newly public companies, as well as its policy on undue restrictions on shareholders’ ability to amend bylaws. ISS codified existing voting policies on independent board chairs and share repurchase programs. Companies should evaluate the potential impact of these and other ISS voting policies on their proxy proposals. Board Diversity Disclosure of board diversity has become more common.  According to the EY Center for Board Matters (EY), 45 percent of the Fortune 100 explicitly disclosed the racial and ethnic diversity of the board of directors and 36 percent disclosed the level of overall diversity on the board, up from 23 percent and 13 percent, respectively, since 2016.  EY also reports that 75 percent of the Fortune 100 now use a skills matrix to highlight the diversity of relevant director qualifications in an easily readable format, up from 30 percent in 2016. Environmental and Social Programs There continues to be great interest in environmental and social disclosures, with more companies dedicating sections of their proxy statements to describing their initiatives.  Before including such disclosure, companies should carefully consider whether they are focusing on the appropriate initiatives, based on stakeholders’ interests and the company’s interests, as well as the company’s views on corporate citizenship.  Information that is included, and in particular, information that is incorporated by reference, need to be vetted for accuracy and completeness.  In his remarks on principles-based disclosure in March 2019, William Hinman, noted that the Staff is watching carefully as market-led approaches develop in this area, and they are actively comparing the information companies voluntarily provide – typically outside of their SEC filings – with the disclosure the Staff sees filed with the Commission. Director Overboarding Investors and proxy advisory firms have been adopting more restrictive policies on public company board service for directors as well as executive officers.  At the beginning of 2019, ISS started recommending votes against directors who sit on more than five public company boards, and CEOs of public companies who sit on more than two public company boards besides their own.  Certain institutional investors are adopting more restrictive limits on outside board service. Service on outside boards is trending downward.  According to the 2019 U.S. Spencer Stuart Board Index, 59 percent of S&P 500 CEOs serve on no outside boards, up from 55 percent last year and 51 percent 10 years ago.  More than 60 percent of the 113 companies with limits on their CEO’s outside board service set the limit at two or more outside boards. Companies should survey their investors’ overboarding policies, their current governance guidelines on other board service, and their director’s commitments. No Action Letter Process The Staff of the Division of Corporation Finance may respond orally instead of in writing to some shareholder proposal no action letter requests, beginning with the 2019-2020 proxy season.  Furthermore, the Staff may now more frequently decline to state a view on a no action request, whereas in the past, it had typically concurred or disagreed with a company’s asserted basis for exclusion.  The Staff still intends to issue a response letter where it believes doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8. In response to concerns that the streamlined process would lead to less available information. The Staff now contacts parties via email to notify them that a decision has been posted on the SEC website, in a chart that includes the name of the company and the shareholder, the date of the company’s initial submission, the bases asserted by the company, the Staff’s response, the date of the response and whether there was a written response.  The chart has links to all correspondence related to the no action letter request, and the Staff intends to update the chart once or twice each week. The Ordinary Business Exclusion In October 2019, the Division of Corporation Finance published Staff Legal Bulletin No. 14K (SLB 14K), providing guidance on the “ordinary business” basis for excluding a shareholder proposal from a proxy statement. SLB 14K is the third SLB in three years addressing this basis for exclusion.  While the Staff has encouraged issuers to include board analysis in certain circumstances, these attempts have been met with very limited success.  SLB 14K clarifies that board analysis is most helpful when it is not clear whether an issue is significant to the company.  SLB 14K goes on to provide guidance on two substantive factors (among several examples listed in SLB 14J) that boards may address on significance, namely the delta between a shareholder proposal and prior company action and how to address prior shareholder votes on the issue. SLB 14K also articulates when a shareholder proposal constitutes micromanagement of a company, and therefore may be excluded: namely, when a proposal seeks intricate detail or imposes a specific strategy, method, action, outcome or timeline for addressing an issue, and thereby supplants the judgment of management and the board. SLB 14K also includes a reminder for companies not to be too technical in their examination of proponents’ proof of ownership letters.  Companies should not seek to exclude a shareholder proposal based on drafting variances in the proof of ownership letter if the language used in such letter is clear and sufficiently evidences the requisite minimum ownership requirements. If a company is evaluating whether to submit a no action request on the basis of the “ordinary business” basis for exclusion, it should carefully review this new guidance, as well as prior Staff Legal Bulletins.